Capture Higher Yields From Crowdfunded Real Estate

In the article, “When Will Rates Finally Normalize,” I noted that one participant at a recent dinner with Bernanke got the sense the former Fed chairman thinks rates won’t normalize for decades to come. If the Fed’s decision to suppress interest rates for the past several years, and perhaps for years to come, is causing great harm to your income-focused portfolio, you might want to consider other opportunities. One such opportunity is real estate. But rather than dealing with the hassle of buying and managing properties yourself, you might consider using the relatively new real estate crowdfunding platforms available on the web.

There are many crowdfunded real estate platforms available to investors. At this time, my two favorite are Fundrise.com and RealCrowd.com. When choosing the right platform for me, I considered a variety of factors, including (1) whether they offer direct or indirect investing in an opportunity, (2) whether they, in any way, charge investors for the service, and (3) the quality, quantity, and diversity of the real estate opportunities offered.

Both Fundrise and RealCrowd offer direct investment opportunities, rather than investing in a fund that would then invest in the partnership that comprises investors for a particular real estate venture. Additionally, as far as I am aware, there are no direct investor fees when making an investment. It is certainly possible, however, for real estate operators to increase their fees (built into the returns) in order to recoup whatever they are charged by Fundrise or RealCrowd.

RealCrowd has thus far offered a diverse selection of commercial properties nationwide, including office buildings and multifamily complexes. As far as I am aware, each of RealCrowd’s investment offerings have been for equity stakes. Fundrise, on the other hand, offers both senior and mezzanine debt, in addition to more traditional equity offerings. Furthermore, Fundrise also offers investors an opportunity to build networks with the various real estate companies listing on the site. Moreover, Fundrise also offers the occasional single-family investment, in addition to scores of commercial real estate offerings. Regarding Fundrise, one thing worth noting is what appears to be a strong slant toward offering real estate on the East Coast.

At this time, real estate crowdfunding is limited to accredited investors. Click here for a definition of who is considered an accredited investor. It is expected that in the near future, the SEC will allow Title III of the JOBS Act to be implemented, in turn allowing non-accredited investors to partake in crowdfunding of private securities (think startups or real estate partnerships).

As I mentioned in the recent article, “Where Has All The Value Gone?” I am currently struggling to find opportunities worth taking for the given levels of risk. In the world of real estate, for example, many recent offerings seem to have either too much leverage or returns that are unacceptably low. But what I consider “too much leverage” or “returns that are unacceptably low” might not be the case for you. Therefore, if you are an accredited investor searching for higher-income opportunities, real estate crowdfunding platforms are worth a look.